Opinion: Daily Journal

Medicaid expansion and job creation: Bad economics, good special interest politics

In December 2018, I wrote the following: “As a general rule, the public and politicians should never view economic impact studies as anything more than an attempt by special interests to manipulate public opinion for their own benefit.” There is no better example of this than the study underwritten by the Cone Health Foundation and the Kate B. Reynolds Charitable Trust that contends that Medicaid expansion in North Carolina would “create” more than 37,000 jobs by 2022. This is an updated version of the original study published in 2014.

Because I have written extensively about the fundamental flaws in similar economic impact studies, I will not review all of those arguments in this space. But there is one conclusion of those analyses that needs special emphasis. It is what I have referred to as “the dirty little secret” of economic impact studies: they are designed to give one kind of result — positive. As I have argued, the “possibility that a subsidy … can generate negative results for the economy, i.e., lose jobs, reduce incomes, or shrink GDP, is ruled out. …” The Cone Reynolds study is no exception. And while the authors of the study claim to refute my arguments (see pp. 8-9), nowhere do they dispute this conclusion. In fact, by invoking what I call the “manna from heaven” argument, discussed below, they implicitly acknowledge it.

The reason I make this claim is that in this study the opportunity costs associated with actual resource usage instigated by the new spending on Medicaid are ignored. For example, when, as a result of the new Medicaid spending, more doctors, nurses, construction workers to build hospitals, janitors, orderlies, etc. are hired, it is implicitly assumed that they would otherwise be unemployed not contributing to economic growth in the state. In other words, there are no job or GDP losses, negative impacts, that have to be subtracted from the positive gains. The authors claim is that so long as all of the spending being considered comes from Washington, there are no opportunity costs, i.e. negative impacts, to be considered.

When asked about this issue in a recent email from the John Locke Foundation, a representative from Regional Economic Modeling Inc., the impact model used in the Cone/Reynolds study, acknowledged that in their model, “increasing government spending (as if it were manna from heaven) will not have a negative impact.” This (false) “manna from heaven” argument matches precisely the claim made by the authors of the Cone/Reynolds study. According to the authors, because federal money is funding 90 percent of the expansion, and it is only this “manna from heaven” that their study focuses on, there are no opportunity costs to the new spending. Their argument rests on the false claim that they would only need to consider opportunity costs if the money flows being analyzed were coming from inside North Carolina, i.e. through higher taxes or as a diversion from other state spending. According to the authors, “our methodology addresses this [opportunity cost] problem by being based entirely on the net federal funds that will flow into the state solely due to Medicaid expansion; we exclude the use of state funds which might be used for other purposes. The additional federal matching funds derive from external sources and would not flow into North Carolina if there was no Medicaid expansion,” i.e. it is manna from heaven. They ignore the reality that the actual resources — land, labor, and capital — being used when the “free money” is spent are not manna and do not come from heaven on the Potomac. They are scarce and would be used elsewhere if they weren’t being bid away from other local businesses and entrepreneurs by the Fed generated Medicaid spending. This is particularly the case in a state such as North Carolina, where the unemployment rate is below 4% and the economy is fully employed.

The problems with the study are compounded well beyond these errors in economic thinking. Both the Cone Foundation and the Kate B. Reynolds Charitable Trust are strong advocates for Medicaid expansion. The Cone Foundation describes itself as the supporting organization of Cone Health, which is a network of hospitals and other health-care providers in the Piedmont Triad region of North Carolina. According to Gov. Roy Cooper, state Medicaid expansion would require a combination of federal and state taxpayers to foot the bill to cover an additional 500,000 North Carolinians. It also could significantly expand Cone’s customer base and would certainly increase its revenue. Medicaid expansion would, indeed, mean a wealth transfer from local entrepreneurs and state and federal taxpayers to health-care providers like Cone Health. Since the Cone Foundation receives its funding from Cone Health (and most of its board is appointed by Cone Health) the Cone Foundation benefits when Cone Health does. As the foundation states on its website, “Cone Health Foundation’s … advocacy strategy is closely aligned with that of Cone Health.”

The Reynolds Charitable Trust appears to be more ideologically motivated. On the philanthropy’s web site, they note their “strategy is to achieve strategic goals that support equitable access to opportunity and effect systems change.” If nothing else, Medicaid expansion is meant to bring about “systems change.” The president of the trust is a member of Gov. Roy Cooper’s Early Childhood Advisory Council, which recently sent a letter to the General Assembly “calling on them to support Medicaid Expansion.”

The fact is that neither of the funders of this study can be seen as “truth seekers” that are simply trying to provide objective analysis to the public. Both are pursuing a pro-Medicaid expansion agenda.

Furthermore, the Cone/Reynolds study is not only funded by special interests, but it’s lead author, a professor from George Washington University’s Center for Health Policy Research, describes himself as a researcher, a public policy analyst, and an “advocate” whose “career has been built around the effort to … improve access to affordable health care for vulnerable populations.” And despite the fact that the title of the study is “The Economic and Employment Benefits of Expanding Medicaid in North Carolina,” neither the lead author nor his two co-authors from GWU list any degrees in economics.

Note also that the title quite honestly acknowledges there will be no discussion of the costs of Medicaid expansion, only the benefits. This speaks volumes. The analysis doesn’t even pretend to be weighing the economic pros and cons of Medicaid expansion, only the pros. If the funders were truly interested in unbiased analysis, they could have gone to any of the major research institutions in North Carolina, all of which have world-class economics departments, to find truly qualified economists to perform a real cost/benefit analysis, instead of funding a “study” that focuses strictly on the benefits.

In assessing the economic effects of Medicaid expansion, the people of North Carolina are presented with a study funded by two special interest advocacy groups, written by three authors with no credentials in economics, and a lead author describing himself as an “advocate.” Furthermore, the study is using an economic model designed to never show job or GDP losses. Those who use this as a basis for claiming that Medicaid expansion will create nearly 40,000 jobs in the state may also be interested in a bridge that I have for sale.

Dr. Roy Cordato, longtime resident scholar at the John Locke Foundation, is editor of the academic journal Political Economy in the Carolinas.